213: Why Health Insurance Is A Mess

How health insurance isn’t really protection against a catastrophic illness but prepayment of routine healthcare consumption, leading to overconsumption of healthcare and over treatment by medical professionals that drive up costs. What would it take to reform the health insurance marketplace so it is more fair and functions more like life insurance or homeowners insurance.

Photo by Piron Guillaume

In this episode you’ll learn:

What has been the traditional role of insurance and why health insurance market isn’t like property & casualty or life insurance marketplaces.

Why most health insurance is provided through employers.

Why the health insurance is flawed and what could be done to make it more fair for individuals seeking protection against major illnesses.

Show Notes

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Episode Summary

The debate on health insurance is not one to be taken lightly – it affects all of us and our families. On this episode of Money For the Rest of Us, David tackles the idea of health insurance and digs into the issues surrounding this industry. He lays out data on health insurance premium prices, explains why health insurance is an artificial market and shares two major flaws in the system. You don’t want to miss these insights, so be sure to listen to this podcast episode.

Health insurance policies are expensive, and they’re only getting pricer

David recently price a Silver level family policy from Blue Cross of Idaho and the quote was over $36,000 a year and a $50,000 out of network deductible. He also began asking questions as to why a patient can never determine how much a procedure may cost. It all has to deal with the complex way insurance companies bill differently for various procedures, in different areas. David shares his insights on these questions on this episode, and they’ll leave you thinking. Don’t miss this episode.

The cons of employer-based health insurance policies

Many Americans today receive health insurance coverage from their employer. However, trouble arises whenever an employee can no longer pay their portion of a premium. Today’s health insurance system results in insurers only paying for expenses as long as the patient continues to pay premiums. This becomes a major issue for people if they become so ill they can no longer work. Or, if a patient switches employers in the middle of an illness, they may find that their new premium is much higher than it originally was. Why is health insurance the only type of insurance to operate in this manner? David seeks to answer this question on this episode – listen here.

Health insurance is an artificial market that encourages overconsumption of healthcare services

In any other type of insurance market (think homeowners insurance), the insurer pays for damages and costs in the event of a catastrophic event. That’s how insurance works. The insurer underwrites a specific amount of risk, sets the premium based on that risk, and is obligated to pay that cost. However, health insurance does not work in this manner. Current health insurance policies make it cheaper to see a doctor for general health checkups and other routine types of procedures. So when a buyer purchases a health insurance policy, they’re simply “consuming care with other people’s money.” It’s not primarily buying protection against casualty. For the full story behind why health insurance is actually an industry based in over-consumption of healthcare, don’t miss this episode.

The two main flaws in the realm of health insurance

David explains the two main flaws that contribute to why the health insurance industry is a mess. First, health insurers are not able to price the risk of a catastrophic event that impacts one individual. Rather, they underwrite policies in groups that results in universal charges for groups of people. Second, if you fall ill and aren’t able to work, and your employer’s health insurer is no longer responsible for paying for your care. This is because most of these types of policies are rewritten once a year – making health insurance different from any other type of insurance.

Health insurance is a complex issue, and David explains this issue in greater detail on this episode. Be sure to listen.

Episode Chronology

[0:57] Why pay $20 for a doctor’s visit, when health insurance is $36,000 a year?
[4:03] Digging into the fundamental flaw in health insurance
[9:10] Why does health insurance pay for “routine maintenance” on our health?
[13:20] The pros and cons of employer-based health insurance policies
[19:35] Health insurance is a mess because it doesn’t primarily insure against a catastrophic health event
[21:42] The current setup for health insurance limits healthcare choices and encourages overconsumption of services
[24:50] Health insurance is an artificial market
[27:00] The over-consumption drives the cost of health insurance
[29:02] Here’s why you can’t figure out what medical procedures actually cost

Transcript

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